Broadcom Cuts 2,500 jobs

SAN JOSE, Calif. — Broadcom will lay off about 2,500 employees as part of a decision on June 2 to exit the cellular baseband business for which it could not find a buyer. The news came in a call with financial analysts in which the company essentially reported neither profits nor revenue growth for its latest quarter.

Broadcom will take a $417 million charge, about $150 million of it this quarter, for the restructuring which will include closing or consolidating 18 offices. "The decision to exit the cellular baseband business puts Broadcom on a path to being a stronger company," said Broadcom's chief executive Scott McGregor.

The decision underscores the significance of the smartphone market and how it is consolidating into the hands of fewer, larger system and chip makers. The layoffs represent about 20% of Broadcom's 12,400 employees.

With its decision to exit the market, Broadcom's cellular SoC business will fall quickly. It is expected to decline to about $50 million in the third quarter and then about half that in the last quarter of the year.

Broadcom expects the next two quarters will be fairly flat overall with revenues estimated at about $2.14 and $2.04 billion respectively.

Despite the cellular move, Broadcom's sales of connectivity chips such as Wi-Fi and Bluetooth will rise in the next quarter, in part due to new system launches planned by partners. However, those products may lose some sockets long term for designs paired with baseband sales, McGregor said.

On the bright side, McGregor said Broadcom is leading a move to 25 Gbit/second Ethernet for data centers which represent about two-thirds of its infrastructure revenues. The company has a leading position in the HEVC codec for Ultra HD resolution systems with design wins beginning this year but revenues not starting until next year, he said. In addition, he predicted growth in the company's chips for automotive and the Internet of things sectors

Broadcom reported revenues of $2.04 billion for the second quarter, up 2.9% from the first quarter but down 2.3% from the second quarter of 2013. The company reported a $1 million loss down from profits of $165 million in the last three months and up from a loss of $251 million in the second quarter of 2013.

The company reported 55% gross margins, a historically high figure. It will spend more than $800 million to repurchase stock, twice the amount previously planned.

2500 is a very big number, so much amount of trained and qualified technical persons getting laid-off. Broadcom is doing good in wireless and Ethernet business market, may be they would have used this qualified manpower in this area instead of laying them off. There are many unattended markets are still there on the entire globe. Like 4G deployment by Reliance in India.

I definitely recall reading that in transitioning to an unlimited vacation policy, your accrued rollover from last year is paid out as cash (income) or can be put into your 401K exempt from the annual limit.

(Actually, expiring vacation rollover from the year before as well as last year could be diverted to your 401K exempt from the annual limit. The problem is that a lot of companies know about it but don't implement it!)

The advantage of unlimited vacation for employers is that there is not rollover to track, and no payout liability if the employee leaves.

I got a couple Wall Street reports in my inbox following the B'com news. Neither one mentions the layoffs and both are positive. Wall Street tends to reward CEOs who cut people and costs.

Here's a snippet from one report. It's by Ross Seymore of Deutsche Bank Equity Research:

"Looking forward, we expect the company's core business to grow faster than the semi industry, its connectivity business to be more resilient than feared, and its margins/cash flow to increase with capital returns to investors rising. We therefore reiterate our Buy and tweak our P/T up to $47."

Late last night I got an email in from Will Strauss of market watcher Forward Concepts in Tempe, Ariz. with this perspective:

"Unfortunately, Broadcom found that there are no big LTE modem sockets to be had since Apple (via Qualcomm) and Samsung (with its own LTE modem now...based on CEVA) have most of the smartphone market. All the other LTE modem sockets (mostly 3rd-world smartphones) are being filled with Marvell, Spreadtrum, Nvidia, Intel, ZTE, Huawei (and soon, MediaTek) LTE modems.

"The volumes of those non-Qualcomm and non-Samsung sockets are small, but hey, you have to start somewhere even its in emerging BRIC countries. The lesson is that those new LTE modem vendors will have to look for 3rd-world sockets that are moving from 3G to 4G. For example, Nvidia is in LTE smartphone sockets in France and South America...something that we don't see from a U.S. standpoint.

"MediaTek is the exception since it's nicely tied into the China cellphone market already. When it finally ships its LTE modem (they claim to be in devices by the end of this year), they will get a big jump over everyone else in China (slugging it out with Qualcomm who knows MediaTek is coming and QCOM is dropping its low-end LTE chips by 10%.

"In reality, Broadcom simply couldn't afford the 1,000+ engineers they had working on a cellular modem business slice that was too small to support them."

Horrible as this is for the 2,500 people involved I am giving B'com execs some credit for taking fast action after seeing the baseband biz was sucking profits and endangering the company.

That said I'd like to get more insight into the history here. How did B'com go in--what 18 months?-- from buying into the Renesas baseband biz, racing toward an LTE chip, then cutting the biz and 2,500 people?

For one thing, they won't be paid out their vacation. Broadcom changed the vacation policy from an accrued entitlement appearing on one's paycheck to "you have as much as you want, just ask your boss" (which in general turns out to be a bad deal).

Cutting 2,500 jobs that's a very big number. HOpe the employees were given assistance in placement elsewhere and sufficient time was also given. Layoffs affects a person socially and emotionally. Management should avoid it to the extent possible.